(Part 1: Focus on Working Capital Loan Guarantee)
The Export-Import Bank of the United States (EXIM) hosts webinars with partners across the country to educate business communities about exporting and how to fund it.
I serve as a moderator to many of these webinars and as part of that role, handle the Q&A session. Among the issues that crop up, I’ve noticed that many attendees are interested in exporting professional services and want to know how to get funding from EXIM to assist them.
EXIM provides two different opportunities of funding for professional services. A working capital loan guarantee and export credit insurance, also known as trade credit insurance. Part 1 of this blog post focuses on the former and part 2 on the latter.
Overview of EXIM’s Working Capital Loan Guarantee
Imagine that you operate a legal services firm in the healthcare industry. It consists of seven staff attorneys, four paralegals, two clerical support staff, and two partners (owners) who specialize in preparing depositions for witnesses and expert testimony for trials within the industry. A hospital in Africa that only has a small legal team has requested you send two of your staff attorneys and paralegals to their hospital in Africa for six months to help prepare some of their physicians to take malpractice depositions and deliver expert testimony.
Your firm is small. Your company has concerns about removing these staff to focus on an international inquiry in another country, as cash flow may present an issue. To do so, you negotiate a contract to cover the majority of the costs for your team to work in Africa for six months. Where does that leave you?
- The upside is that your firm now will have a global presence for your services, with the potential to expand your market.
- The downside is that your operating cash flow may be tight and you may need to hire more attorneys to handle any resulting expanded caseloads (which also might be a positive if your goal is to grow your business).
Your executive team works on the financials for your firm. A partner on the team decides to reach out to your company’s lender to find out if you can apply for a working capital loan to expand your firm internationally and increase your cash on hand. That’s where EXIM’s Working Capital Loan Guarantee comes in – it’s a guarantee to a commercial lender that makes a loan to an exporter to purchase or manufacture U.S. goods or services for export. Your lender then reviews the terms of your contract to determine whether it meets EXIM’s loan guarantee criteria.
Here’s a checklist of what you will need to get your commercial lender to approve an EXIM loan guarantee:
- Foreign customer must be within EXIM’s Country Limitation Schedule which identifies countries where EXIM support is acceptable.
- Staff sent to international locations must be U.S. nationals.
- The loan must meet EXIM’s requirement of more than 50% U.S. content.
- Exporters need to provide financial statements for the past three years.
- Your company needs to have a signed professional services contract with foreign customers’ and proof that it can meet the qualifications of the contract.
- Trade credit insurance policy is a “nice to have” when applying for a working capital loan with a commercial lender.
- Your company must have an active DUNS number.
- No defense, military, or national security services.
- During COVID-19 pandemic, no personal protective equipment (PPE) or support services.
Your firm’s signed contract will be used as collateral for the working capital loan, so your contract should also include detailed information, such as the following:
- Scope of work to be performed and proof your firm can meet the scope of work, terms, and conditions.
- Terms: Invoice schedule, payment terms, currency for payment.
- Other conditions, such as timeframe of contract, types of deliverables, and agreed upon transactions for deliverables, agreed deadlines, types of U.S. content outlined, etc.
- Other recommendations from your commercial lender or EXIM’s team.
- A legally binding, signed contract.
Service Exporter Benefits of EXIM’s Working Capital Loan Guarantee
- The benefit of more attractive advance rates than from a commercial financial institution.
- Lower collateral requirements for bid or performance bonds.
- Flexible financing for larger contracts
Most importantly, if your firm defaults on its working capital loan payments to your commercial lender, EXIM’s guarantee will cover up to 90% of your loan to the lender.
This wraps up our discussion of EXIM’s Working Capital Loan Guarantees. In part 2 of this post, I’ll go over the role of EXIM’s Trade Credit Insurance in expanding your opportunities for exporting professional services.
So, if you are a service provider looking for new customers to expand your business into the global marketplace, request a free consultation with an EXIM regional trade expert to discuss your personal situation and learn more about the EXIM’s trade finance solutions available to your company.